The Oversight of M&A

Mergers and acquisitions (M&A) activity—from the purchase or sale of significant stakes or assets to the buying or selling of entire companies or company units—is a permanent part of business life. Most boards of directors will experience or at least contemplate this mode of growth or restructuring during at least one point in its tenure. This is particularly true of US public companies. According to Securities and Exchange Commission data, a substantial percentage of the approximately 4,000 exchange-listed companies complete an M&A transaction each year, leading to a 3 percent rate of delisting due to merger. All listed companies are also vulnerable to tender offers.

At any given time in their service, directors of any corporation—public, private, or nonprofit—may pursue expansion through acquisition or contract through divestiture or sale. Although the role of initiator usually falls to senior management (sometimes with pressure from investors, when it comes to divestitures), the board often retains authority of final M&A decisions, particularly those outside the course of routine business operations.

M&A: A Significant Area for Board Oversight

Each of these transactions necessitates careful consideration of a wide range of post-transaction issues affecting internal and third-party constituents of both buyers and sellers.

This NACD Director Essentials outlines the role of the board in seven key phases in the M&A life cycle and critical areas in M&A governance.